NEW ORLEANS (AP) — A surprise ruling by a federal appeals court that lets the Army Corps of Engineers off the hook for paying compensation for Hurricane Katrina’s catastrophic flooding isn’t going over well on the streets of New Orleans.

People in southern Louisiana have long taken for granted that the flooding in the wake of the 2005 storm was a manmade disaster — one caused specifically by the corps — and they have wanted the agency to pay up for lost homes and property.

But on Monday, a three-judge panel of the 5th Circuit Court of Appeals reversed its earlier opinion and shot down the only argument that had succeeded so far in holding the corps accountable. The ruling also could make it extremely difficult to force the government to pay damages for future mishaps.

In March, the appellate court panel upheld a 2009 ruling by U.S. District Judge Stanwood Duval that had found the corps liable for the flooding of New Orleans’ Lower 9th Ward neighborhood and St. Bernard Parish because the agency failed to properly maintain a shipping channel. That channel, dug in the 1960s, funneled Katrina’s storm surge into the city. Thousands of homes were destroyed, about 1,400 people died in the flood and much of the city was left under water.

Then on Monday, the same panel did a legal backflip and said its new ruling “completely insulates the government from liability,” leaving lawyers and residents baffled.

“There are certain criteria where the federal government can be sued, and I think the levee breaches is a perfect example because the Corps of Engineers is the one that developed the levee system,” said Alvin Alexis, 62, who had two female cousins die in the flood.

His home was flooded, and he moved his family across the Mississippi River to an area he considers safer. Because he was a renter, he said he got only $10,000 in federal aid.

In the Lower 9th Ward, one of the areas hit hardest by Katrina, restaurant owner Henry Holmes said he was disappointed. He said he has struggled to keep his restaurant open in an area that is now a mere shell of what it was before the storm.

“I feel like somebody should be held liable,” Holmes said.

Neither Holmes nor Alexis were plaintiffs.

Despite the tens of billions of dollars in reconstruction money spent so far in New Orleans, some 500,000 people, businesses and government agencies have sought additional compensation by filing claims against the corps.

But federal laws grant the corps extensive immunity against flood-related lawsuits and give the government lots of leeway in how agencies conduct their business.

The small army of lawyers fighting the corps over Katrina has long lamented how difficult it is to take on the federal government, a fact reinforced by Monday’s ruling.

“It’s a Herculean task,” said Pierce O’Donnell, a lead attorney in the case. “The government makes the laws — they created the immunity; it prints the money — they have unlimited funds; and the case is tried in a building called the U.S. courthouse.”

Under federal law, the government cannot be sued over actions that were based “on considerations of public policy,” the appeals panel wrote. The corps’ decisions regarding the shipping channel fall under that protection, the judges wrote.

Specifically, the ruling dealt with allegations that the Army Corps let a shipping channel called the Mississippi River-Gulf Outlet erode wetlands and swamp forests southeast of New Orleans. The channel was built as a short-cut between New Orleans and the Gulf of Mexico, but the economic benefits never paid off, and only a few ships used it before Katrina.

The corps poorly maintained the channel known locally as “Mister Go,” and the erosion and other damage has been called one of the nation’s worst environmental disasters by some. Scientists have blamed Mister Go on the loss of about 18,000 acres of marsh and 1,500 acres of cypress swamps.

Wetlands are considered a crucial natural buffer to hurricanes, acting as a buffer that can help keep floodwaters at bay. Attorneys have argued the MRGO became a “hurricane highway” that funneled water into New Orleans and overwhelmed the city’s floodwalls, though the government has said the floodwalls would have failed even if the waterway had never been dug.

The Justice Department and the Army Corps declined to comment Tuesday.

O’Donnell said he was disappointed by the panel’s about-face, which leaves about 100,000 claims related to Katrina in limbo. On average, each claimant had expected to get about $140,000 in damages to cover property losses and other expenses and inconvenience caused by the flooding.

He was not yet certain if attorneys would ask the 5th Circuit to rehear the case or appeal to the U.S. Supreme Court.

Either way, it’s likely the case is not yet completely settled because there is so much at stake, said Mark Davis, a Tulane University law professor who specializes in water policy.

Not only does this case potentially involve billions of dollars, but its outcome could set a precedent for whether the corps can be held responsible for future flooding disasters.

Davis said the appeals court may have reversed itself over concerns that the previous ruling could expose the federal government to too much liability across the nation. The Army Corps has been sued before, but it always came away untouched.

“And some of that is because we have asked it to do all sorts of big risky things and the deal was that if we do it, you can’t sue us,” Davis said.